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“I’m a solopreneur. Why can’t I just run personal and business expense through the same account?”

The short answer: You can’t and you shouldn’t. We’ve seen people use their company cards to cover everything from vet bills to vacations. However, you can’t write those expenses off because they aren’t qualified business expenses. A qualified business expense is anything that is ordinary and necessary to you running your business, like your phone or laptop. When it comes time to file quarterly or annual taxes, it becomes difficult to keep track of your business finances when everything is mixed together.

Another thing to keep in mind: you may not always want to be a solopreneur. If your business starts to grow or scale, you might have a hard time explaining to potential investors and partners why you’re using company profits to pay for things like dog grooming.

My advice: Keep your business and personal expenses in separate accounts. If you haven’t—or if you get audited—don’t panic. Q1 is the time to revisit your financial structures and we can help.


“Why doesn’t my bank account balance match my income statement?”

A lot of people get confused by this, but it’s because it shouldn’t. Your net income is a statement of activity, not a statement of position. Here’s a breakdown of the difference:

  • Income statement: This is a summary of spending activity that covers a specific time frame. On this sheet, you’ll see how much you made in revenue and the cost of expenses.
  • Balance sheet: On the flip side, a balance sheet covers your current position. It shows you a snapshot of where your business is at a certain point in time. In other words, if you had to liquidate your business today, this is what you would have left in cash.

“Is it true that claiming home office deductions is a red flag to the IRS and I’d probably get audited?”

The IRS has very strict rules when it comes to home office deductions. Taking the home office deduction in itself is not a red flag; the red flags arise when taxpayers try to push the limits of this deduction.

The best way to avoid an audit in this area is to make sure you have a separate room designated as a home office. It cannot be a shared space, such as working from your kitchen table or office that’s also a guest room. This is why most people get audited. You must list the square footage of your home office in comparison to the total square footage of your home as a whole. If you have to provide an estimate, be reasonable. Anything over 50 percent is unreasonable and definitely a red flag.

As long as you truly have a dedicated home office in a separate space, taking this deduction is not anything to worry about.

Go Figure Accounting